Nvidia Going Ballistic After Bernstein Upgrade

Better Late Than Never

Shares of Nvidia (NVDA) are going ballistic. A series of bullish upgrades after last week’s blow out earnings report has the stock trading at an all-time high with double-digit gains still ahead. Today’s news, an upgrade from Bernstein, is of particular note because it is the analyst’s second price target hike in under a week.

Last week, Bernstein reiterated their market perform rating after Nvidia released its earnings report. Analyst Stacy Rasgon raised the price target to $300, a 33% increase, a decision she now regrets. This week, Bernstein raised its rating to outperform and the price target to $360, a 20% gain from Tuesday’s close and the Wall Street high.

Bernstein isn’t the only sell-side analyst to be bullish on Nvidia. The company is a leading chipmaker on several fronts and showing signs of increasing demand in key businesses. Well-known for its gaming chips, Nvidia is now a major-player in the data center industry. Bank of American and Cowen both maintained their buy/outperform ratings but upped their targets because of that strength.

The Analysts Are Bullish But Maybe Not Bullish Enough

The average analysts rating, out of 40 sell-side analysts covering the stock, is a buy. Fully three-quarters of the group rate the stock a buy or outperform with only one rating a sell. Notably, the average analyst has been getting more bullish over the last 90 days but, based on the consensus price target, maybe not bullish enough.

As of today’s data, the consensus price target is only $270. That’s a 12% downside from current trading levels suggesting two things. Either the market has gotten ahead of itself or the analysts aren’t bullish enough. Based on last week’s earnings report and the outlook for data center demand we can expect this company to continue delivering strong results long into the future.

Double-Digit Growth, It’s In The Forecast

Nvidia’s results were most notable because of the strength in the data center segment. Increased demand for hyper-scale cloud computing solutions drove a 43% increase in YOY revenue, far more than the market was expecting.

With total revenue of $0.968 billion, the data center segment has grown to 31% of the total. At that scale, it is quite significant to the company’s underlying health and should drive revenue growth over the next year. Demand for data center technologies is only expected to grow as hyper-scale revolutionizes modern IT infrastructure.

But the data center is not Nvidia’s only source of growth. It’s core business, gaming chips, saw its revenue increase 54% over the last year. Add to this a 13% increase in Professional Visualization and 30% increase in OEM and other revenue, offset by a small decline in the automotive segment, and total revenues are up 41% from the previous year. Looking forward, the company is expecting 35% jump in YOY revenue for the 1st quarter and 14% for the year.

The Technical Outlook: Bullish, A Secular Breakout Is In-Play

The technical outlook for Nvidia is very bullish. The daily charts are a little scary to look at simply because of the rapid upward movement, what goes up must come down so to speak. That said, the move has broken the stock out of a long-term range and set a new all-time high. The indicators are also very bullish, MACD is on the rise and forming an extreme peak while stochastic fires another bullish crossover, so we can expect upward price pressure to persist in the near-term at least.

The weekly chart is the one that gets me really excited. On this chart, a secular breakout is clearly evident and supported by the indicators. With prices moving to new all-time highs we can start to make price projections based on the consolidation range. The range, which lasted from late 2018 to early 2020, has a magnitude of $159. Projecting that from the point of breakout, the $285 resistance line, gives a target of $445 over the next two years.